Bank Stock Roundup: Q2 Earnings In Full Swing, Citi & U.S. Bancorp Impress

In spite of the tough industry backdrop and rising provisions due to energy sector lending, most of the banks that reported second-quarter 2016 results this week managed to beat estimates with their cost-control measures and top-line strength. This also led to positive price movement for most stocks.

Further, the results demonstrated an upswing in loans driven by a rise in commercial loan demand, which ultimately boosted net interest income. Additionally, the rise in deposit balances helped drive organic growth at the banks.

However, an overall rise in non-interest expenses owing to high spending on technology and other market development initiatives was an undermining factor. Moreover, the low-rate environment adversely impacted net interest margins for most of the banks. Nevertheless, the absence of exceptionally high legal expenses helped banks outpace the Zacks Consensus Estimate.

BANKS-MAJOR REGIONAL Industry Price Index

BANKS-MAJOR REGIONAL Industry Price Index

(Read: Bank Stock Roundup for the week ending Jul 15, 2016)

Important Earnings of the Week

1. U.S. Bancorp (NYSE:USB) reported a positive surprise of 2.5% in the second quarter of 2016. The company reported earnings per share of 83 cents, beating the Zacks Consensus Estimate by 2 cents. Results also exceeded the prior-year quarter earnings of 80 cents. Excluding non-recurring items related to equity investments, legal and regulatory matters and charitable contributions, earnings per share came in at 82 cents. Organic growth was driven by higher revenues along with elevated average loans and deposits. Steady capital deployment activities reflected a strong capital position. However, an increase in expenses and provisions were a major drag (read more: U.S. Bancorp Beats Q2 Earnings on High Revenues).

2. Driven by a decline in operating expenses, Citigroup Inc. (NYSE:C) delivered a positive earnings surprise of nearly 15% in second-quarter 2016. The company’s earnings from continuing operations per share of $1.25 for the quarter outpaced the Zacks Consensus Estimate of $1.09. However, earnings compared unfavorably with the year-ago figure of $1.51 per share. Though profitability was hit by a decline in overall revenues, the company recorded higher fixed income markets revenues, driven by an improved trading environment and increase in corporate client activity in rates and currencies in the reported quarter (read more: Citi Tops Q2 Earnings on Low Costs, Trading Revenues Up).

3. Higher provisions and a decline in revenues resulted in a 16% year-over-year drop in Bank of America Corporation (NYSE:BAC)’s (NYSE:C) second-quarter 2016 earnings of 36 cents per share. However, earnings surpassed the Zacks Consensus Estimate of 34 cents. The results in the reported quarter included 5 cents per share of negative market-related net interest income adjustments and 1 cent per share of negative net debit valuation adjustments. Excluding these, the company would have earned 42 cents per share. Weaknesses in equity trading revenues, investment banking fees and mortgage banking revenues were the headwinds. Further, a jump in provisions added to concerns (read more: BofA Q2 Earnings Slide on Higher Provisions).

4. Impacted by higher expenses, Wells Fargo & Company’s (NYSE:WFC) second-quarter 2016 earnings recorded a negative surprise of about 1%. Earnings of $1.01 per share missed the Zacks Consensus Estimate by a penny. Moreover, it compared unfavorably with the prior-year quarter’s earnings of $1.03 per share. Wells Fargo witnessed organic growth aided by higher revenues along with strong loans and deposit balances. Moreover, a strong capital position along with returns on assets and equity acted as the primary drivers. However, higher provisions and expenses were a concern (read more: Wells Fargo Q2 Earnings Miss Estimate, Expenses Up).

5. The PNC Financial Services Group, Inc.’s (NYSE:PNC) second-quarter 2016 earnings per share of $1.82 handily beat the Zacks Consensus Estimate of $1.75. However, the bottom line declined 3% year over year. Better-than-expected results were aided by increased net interest income and relatively stable expenses, partially offset by lower non-interest income. Also, continued growth in loans and deposits were among the other positives. However energy related headwinds persisted, which led to higher provisions (read more: PNC Financial Tops Q2 Earnings, Provisions High).

6. A notable rise in the top line drove BB&T Corporation’s (NYSE:BBT) second-quarter 2016 adjusted earnings of 71 cents per share. This comfortably beat the Zacks Consensus Estimate of 65 cents. Higher net interest income and non-interest income led to the better-than-expected results. Further, loans and deposits witnessed strong growth. However, increased operating expenses and a rise in provision for credit losses were the headwinds (read more: BB&T's Q2 Earnings Beat, Revenues Up Year Over Year).

Price Performance

Overall, the performance of banking stocks reflected bullish sentiments. Here is how the seven major stocks performed:

In the last five trading sessions, BofA and Wells Fargo were the major gainers, with their shares increasing 4.5% and 1.2%, respectively. However, JPMorgan Chase & Co. (NYSE:JPM) shares declined 0.8%.

JPMorgan and Capital One Financial Corporation (NYSE:COF) (NYSE:C) were the best performers over the last six months with their shares gaining 15.3% and 11.1%, respectively. Moreover, Citigroup shares increased 9.9%.

What's Next in the Banking Space?

The focus will solely be on earnings releases next week as well. KeyCorp. (NYSE:KEY) is scheduled to report on Jul 26, BOK Financial Corporation (NASDAQ:BOKF) and Cullen/Frost Bankers, Inc. (NYSE:C) on Jul 27 and Fifth Third Bancorp (NASDAQ:FITB) on Jul 28.

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